Research in focus: The ownership structures of business groups in Brazil.
Brazil’s large groups address institutional difficulties well, and when the government is a minority shareholder, they are able to achieve better results.
Objective: To empirically test the effect of the institutional environment on brazilian business groups during the 2001–2009 period and to assess the resilience of such groups.
• Data collected between 2001 and 2009 from 317 Brazilian business groups with average revenues over R$ 1 billion.
• Measurement of the institutional environment for four groups of variables, with the objective of detecting reforms enacted during the study period: (1) capital markets (exchange rate stability, national credit ratings, interest rate spreads); (2) product and service markets (the IMF index capturing economic liberalization, governance and market protectionism); (3) labor market; (4) legal and regulatory issues, both based on the IMD World Competitiveness Index. Political connection variables were also used, such as campaign donations and government shareholder status.
• Brazilian groups navigate the Brazilian institutional environment well, except with regard to two aspects: the quality of government expenditures and taxes.
• When the government is either a direct or an indirect shareholder of the company, the harmful effects of the environment are mitigated, and even the tax burden is partially offset.
• Political campaign donations have no discernible effect on the revenues of the companies surveyed.
• Brazilian business groups have advantages with regard to overcoming market faults. For example, they usually have a controlling interest in financial institutions and can, therefore, easily protect themselves from fluctuations in both exchange rates and interest rates.
• Being able to rely on the government as a minority shareholder has a significant influence on results. Stateowned banks, for example, offer cheaper financing and longer credit periods. The government can also offer subsidies and provide relief for certain sectors.